Another City Looking After Its Low-Income Residents? Bank On It

Mark Huelsman — Tue, 26 Aug 2008 22:47:00 -0400

Add Evansville, Indiana to the list of communities adopting services for the unbanked. City leaders, in collaboration with a number of financial institutions, have set up a program called "Bank on Evansville." Similar to the "Bank on San Francisco" program currently up-and-running, this program will attempt to keep unbanked families from paying excessive check-cashing fees, which can total nearly $900 annually for some, according to the city.

Though details have yet to be finalized on the program (set to launch in 2009), many banks and credit unions are already offering accounts that require no minimum balance, as well as second-chance accounts for those who have lost one.

To be eligible for these accounts, the city is offering and requiring those who enroll to take a financial education course. Details of the course have yet to be finalized.

Partners include: Old National Bank, the Federal Reserve Bank of St. Louis, the United Way of Southwestern Indiana, Integra Bank, Fifth Third Bank, the Bank of Evansville, Farmers State Bank, Evansville Commerce Bank, Heritage Federal Credit Union and the Evansville Teachers Federal Credit Union.

These programs provide much-needed financial education to those who need it most while providing many with a first-time opportunity to save and build up their asset base.

According to the Census bureau, 14% of U.S.-born white families have no checking or savings account, compared to 34% of U.S.-born Hispanic families and 46% of black families. Evansville officials estimate that 6,000 residents are currently unbanked, out of a population of approximately 110,000-- or 5.4%. Although surveys vary, that number seems to be lower than the national average.

Listening to the Unbanked

Alejandra Lopez-Fernandini — Tue, 22 Apr 2008 14:41:00 -0400

Between 10 and 20 million Americans are unbanked, meaning they lack a basic checking or savings account. An estimated 40 million others are underbanked--they have a bank account but may have difficulty retaining it, and are not fully integrated into the financial mainstream.

What deters low and moderate income individuals? Households living paycheck to paycheck often avoid traditional bank accounts for their minimum balance requirements, high overdraft penalties, monthly maintenance fees, and delayed deposit of checks. As a result, public-private efforts to pilot initiatives are addressing this disconnect between mainstream market offerings and low-income banking needs and yielding important insights into consumer demand. However, in an effort to tailor public and public-private initiatives targeted towards under-banked populations, it is important to listen to their preferences to structure valuable programs that they will use. In this regard, policy-makers can look to the private sector's experiences for guidance.

What do we know from research, well-crafted demonstration projects, and surveys of low income non-bank consumers? First, consumers prefer quick and convenient access to their funds; a product to conduct point-of-sale and ATM transactions; the opportunity to set aside funds in savings account; transparent fees and process; and government safeguards and protections.

From consumer research of the alternative financial services industry (specifically, check cashing establishments nationwide), we know that consumers seek these non-bank financial products and services because they provide transparent fees stated up-front, immediate liquidity, a sense of privacy, multi-lingual service representatives, and the ability to purchase multiple services-all in convenient locations and hours. Consumers are also drawn to non-bank providers because they convey high levels of trust, respect and security to the individual.

Low income consumer preferences have become well-incorporated into practices of very profitable alternative financial services industry; public efforts to bring more working individuals into the financial mainstream should follow suit, without adopting their predatory and usurious practices.

The New America Foundation's concept for an Assets and Transaction Account proposes to leverage the tax filing process to deliver a transaction and savings account to working, low-income individuals. By directly depositing a tax filers' refund into a basic, low-cost account held at regulated financial institution, the individual will gain access to the mainstream financial system and a host of product features informed by consumer preferences.

Public policies aimed at jumpstarting a relationship between a working individual and a regulated financial institution should take some cues from the private sector and incorporate knowledge of lower income consumer preferences in efforts to design and provide access to safe and fairly priced services. By listening to consumer preferences, policy-makers can deliver programs that are fair and affordable and meet the needs of those they are serving.